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Assembly Commerce and Economic Development Committee Statement to Assembly, No. 1958, Dated March 20, 2023

Summary

Statement of the Assembly Commerce and Economic Development Committee of the State of New Jersey, dated March 20, 2023, reporting Assembly Bill 1958 favorably with committee amendments. The bill supplements the Franchise Practices Act to address hospitality franchises whose franchisees must keep a place of business in the State, treating such a franchise as merchandise under the consumer fraud act. Franchisor conduct that would violate the Act includes undisclosed consideration from vendors, mandatory designated suppliers, competing in an exclusive territory under another mark, changing material terms through the operations manual, undisclosed fees, charges for failing to enroll a minimum number of guests, and selling loyalty points without compensating the franchisee. The amendments narrow the scope, define consideration and franchise advisory committee, and drop several violations.

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Full text

ASSEMBLY COMMERCE AND ECONOMIC DEVELOPMENT
                COMMITTEE

                          STATEMENT TO

                     ASSEMBLY, No. 1958
                         with committee amendments



       STATE OF NEW JERSEY
                           DATED: MARCH 20, 2023

          The Assembly Commerce and Economic Development Committee
      reports favorably Assembly Bill No. 1958, with committee
      amendments.
         As amended, this bill would supplement the “Franchise Practices
      Act,” P.L.1971, c.356 (C.56:10-1 et seq.) (Franchise Practices Act)
      to address hospitality franchises in which the franchisee is required
      to maintain a place of business within the State. Under the bill, a
      franchise, as defined in 16 CFR 36 and 437, that is a hospitality
      franchise, will be considered “merchandise” under the consumer
      fraud act, P.L.1960, c.39 (C.56:8-1 et seq.).
         The bill defines “hospitality franchise” as a written arrangement
      for a definite or indefinite period, in which a person grants to
      another person a license to use a trade name, trade mark, service
      mark, or related characteristic, and in which there is a community
      of interest in the marketing of goods or services at wholesale, retail,
      by lease, agreement, or otherwise, where the goods include any
      hotel, motel, inn, tourist camp, tourist cabin, tourist home, rooming
      house or similar establishment where sleeping accommodations are
      supplied for pay to transient or permanent guests.
         The bill contains a list of hospitality franchisor activities that
      will be considered a violation of the Franchise Practices Act. The
      bill makes it a violation for a hospitality franchisor to receive
      consideration, directly or indirectly, from a vendor or affiliate
      unless the consideration is first disclosed to the franchisee and
      unless the benefit is turned over to the franchisee.
         The bill makes it a violation for the hospitality franchisor to
      require a franchisee to purchase goods or services from suppliers
      designated by the franchisor if goods or services meeting the
      franchisor’s reasonable specifications and standards are available
      from other sources. The bill also calls for the franchisor to license a
      third-party supplier to use its trademarks for franchisee supplies in
      the case of supplies that carry the mark. The bill ensures that the
      hospitality franchisor will not compete with the franchisee in an
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exclusive or protected territory under a different name or mark
without the franchisee’s consent.
   The bill prohibits the practice of unilaterally changing the
material terms of the franchise agreement by implementing changes
in the operations manual. This provision makes it clear that the
hospitality franchisor may not materially change the contract with
the franchisee by altering the manual, unless the change concerns
the health, safety, or welfare of guests or employees. The bill
prohibits the franchisor from imposing any new fees on the
franchisee unless the fees were disclosed in a franchise disclosure
document, and unless they were approved by the franchisee
advisory committee or the franchisee. The bill makes it a violation
for a hospitality franchisor to impose a fee or charge on the
franchisee as the result of a franchisee’s failure to enroll a minimum
number of guests.
   The bill prohibits a hospitality franchisor from selling points in a
loyalty program to guests to use at a franchisee’s facility without
compensating the franchisee for lost revenue.
    Finally, the bill specifies that a violation of any of these
provisions, or any of the provisions of section 7 of P.L.1971, c.356
(C.56:10-7), shall not constitute good cause for a franchisee’s
termination.

COMMITTEE AMENDMENTS:
Proposed committee amendments would:
    Omit from the bill’s scope a hospitality franchise agreement
      that requires a franchisee owner, partner, member, investor, or
      guarantor to be a resident of New Jersey, and intends more than
      20 percent of the franchisee’s gross sales to be derived from
      that franchise.
    Define the terms “consideration” and “franchise advisory
      committee.”
    Omit from the bill several potential violations of the Franchise
      Practices Act and clarify some other potential violations.

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